Investing in dividend-paying ETFs can be an effective strategy for diversifying your portfolio while also generating passive income, regardless of market conditions.
S&P 500 As July draws to a close, we’re witnessing remarkable gains. The index has reached an all-time high, climbing more than 27% since hitting a low in April.
A “V-shaped” recovery might leave some investors feeling cautious about jumping into the market, even with top-performing stocks. Those hesitant might want to explore a diversified exchange-traded fund (ETF) that focuses on passive income generation. This way, returns are less dependent on just stock price increases.
A trio of contributors recommends the Global X MLP ETF, Schwab US Dividend Equity ETF, and JP Morgan Nasdaq Equity Premium Income ETF as top choices for investment right now.
Investing in America’s energy infrastructure with this high-yield ETF
Lee Samaha (Global X MLP ETF): This ETF targets Midstream Master Limited Partnerships (MLPs), which primarily manage natural gas pipelines and storage facilities. MLPs are publicly traded but structured as limited tax partnerships, offering distinct advantages for investor distributions. Currently, with 20 infrastructure investments, this ETF boasts a 12-month distribution yield of 7.5%.
Interestingly, its performance often shows little correlation with the S&P 500, which can be a double-edged sword. While it allows investors to engage without raising their overall exposure to the S&P 500, it reflects the sentiment around the long-term viability of natural gas in the economy. Negative perceptions can arise, especially with the rise of renewable energy.
But, there’s growing recognition that natural gas will likely remain a crucial part of future energy infrastructures, offering reliability and cost-effectiveness at a time when renewables can be inconsistent. Moreover, it’s a plentiful energy resource in the U.S., vital for maintaining domestic energy sufficiency.
Low management fees and high yields are just two reasons why we love Schwab US dividend equity ETFs
Scott Levine (Schwab US Dividend Equity ETF): For those seeking solid dividends, Schwab’s ETF is a reliable option to enhance portfolios with passive income. Its 30-day SEC yield is currently 3.8%, with an impressively low total cost ratio of just 0.06%.
With over $71 billion in net assets, these ETFs attract risk-averse investors for various reasons. Notably, about 62% of the fund’s holdings are large-cap companies, which tend to exhibit less volatility and more consistent dividends compared to smaller-cap stocks.
Take major players like Texas Instruments and Chemron, both part of the top positions in this ETF. These firms, with market caps over $195 billion, demonstrate a long-standing commitment to shareholders through increasingly rewarding dividends.
Even if the S&P 500 dips this month, the focus on generating stable passive income from Schwab’s ETFs would still be advantageous.
High yields on this ETF are real deals
Daniel Foelber (JP Morgan Nasdaq Equity Premium Income ETF): Launched in May 2022, this ETF emerged during a particularly challenging year for the NASDAQ-100. It offers a method to earn revenue through options, dividends, and various strategies leveraging the volatility of its underlying assets.
The primary revenue generation comes from selling covered call options, exchanging the potential for stock gains for guaranteed returns.
For example, Nvidia, a major holding in both the NASDAQ-100 and this ETF, was priced at $170.78 at the time of writing. A call option to sell at $175 has a midpoint valuation of $4.10.
By selling this call option, an investor can secure $4.10 per share, but if Nvidia’s price surpasses $175, things can get complicated. While this strategy may seem risky, it’s effective for those willing to forego stock appreciation for dividend income. That’s precisely the goal of the JP Morgan Nasdaq Equity Premium Income ETF.
High volatility stocks typically lead to elevated options premiums. Therefore, call options for NASDAQ-100 stocks tend to cost more than for S&P 500 shares. In other words, buyers of riskier growth stocks will often pay more than those purchasing options on more stable companies like Coca-Cola. This is part of why the fund can offer a substantial 30-day SEC yield of 11.2% (as of June 30, 2025).
While the ETF has only seen a modest overall gain of 15.3% in the past three years, its dividend income surged by an impressive 61.4%, aligning it more closely with the S&P 500.
For those invested in the NASDAQ-100 without an income strategy, the results might have been significantly better. The past few years have largely favored top growth stocks. If those stocks stabilize or trade sideways, the JP Morgan Nasdaq Equity Premium Income ETF could deliver a better outcome than the NASDAQ-100.
With an expense ratio of 0.35%, this fund is pricier compared to basic index funds or sector ETFs. However, its unique strategy and benefits often make the fees worthwhile for investors planning on monthly passive income from growing stocks. It’s essential to remember that the premium from options does not offer much downside protection, leading to volatility in line with the NASDAQ-100 during sudden sell-offs.
